The economic experts have their theories! Count on your own experience, the experiences of others in the racing industry and what your customers are telling you.

By John Aberle, Ph.D., Emeritus Professor of Marketing San Jose State University

“Too clever by half” is a British expression, referring to people who are very, very smart and who then proceed to use their wits to outsmart themselves. Owners of small companies often seek advice in taking their businesses to the next level. It’s a wise thing to do on the surface, as long as the owner does not betray his or her own instincts in consulting with someone who proves to be “too clever by half.”

Certainly, it would be great to use these ‘smart people’ as shortcuts to business success, but it’s simply no substitute for experience and knowledge of the market. The things these ‘smart people’ say get our attention because their utterances are usually well presented and, on the surface, appear to be so logical that they defy rebuttal.

It’s very easy to be swayed by someone on television, or speaking at a seminar, or just someone at a party who has an impressive background to back up an opinion.

However, I will argue here that the owner of a small racing business need not be too concerned about any warnings from these self-avowed experts. The entrepreneur—especially in the racing industry—has many assets that he or she must tally when weighing another opinion. The racing industry entrepreneur has the advantage of sensing developments on a daily basis, and changing his or her operation so that the ‘predicted inevitable’ never happens.

Macroeconomics: The Enemy Within

From time to time, I imagine most of you are brought face to face with the affirmations of seers whose views are based upon mathematical computerized models. Since one number follows another, and these, in turn, are based upon preceding numbers, it is almost impossible to refute their arguments. After all, they used very complicated math. They may have even used computers.The fallacy in this reasoning process is the assumption that individual human beings behave as uniformly as hydrogen molecules. Therefore, the reason goes, mathematical equations can be used to describe the economy.

But that is simply not so. People, the culture, technology are changing constantly. Fixing your business navigation based on the trajectory of past events does not prevent one from making misjudgments.

There was a time when economics was thought, at best, to be a behavioral science. Economists said they could only guess at how human beings would react to different economic events. In spite of the articulate certainty of the mathematical modelers, economic guesswork still prevails. People are not hydrogen molecules. They do not sit still in accordance with the economic assumptions built into computers.

No Easy Answers

The hard fact about business is that unintended consequences outnumber intended consequences. The economy is a complicated matrix affected by a multitude of factors. Strategies rarely unfold as imagined. Certainty is a delusion.

Reliance upon probability makes more sense for the smaller firm owner. This method of thinking is not in terms of absolutes—of being absolutely right or absolutely wrong. Rather, it indicates various alternative possibilities, none of which is absolutely correct or absolutely incorrect. It indicates varying degrees of plausibility for reach of the alternatives.

The practical application is this: Since it is impossible to determine with any degree of certitude whether a given activity will work, the best way to improve your odds for success is to try as many things as you can, subsequently concentrating on those that, in practice, show the greatest promise. The entrepreneur can quickly find out what is actually bringing in the cash. And if it works, don’t fix it.

Ask & Listen

Your two best databases, which provide new ideas for you to try, are your customers and your industry.

The story is often told about Alfred P. Sloan, the marketing genius that built General Motors, who got out of his ivory tower in Detroit in order to obtain information directly from those who purchase the firm’s products. Sloan spent six weeks every year as a floor salesman in dealerships throughout the United States. In that way, he picked up the likes and dislikes of customers, subsequently incorporating their ideas to improve the corporation’s service to its customers.

Owners of racing retail stores have the large advantage of seeing their customers daily. By being good listeners and observing consumer reactions, owners can identify new ideas to try. Some will work and some won’t. But on balance, those that work will improve the owner’s odds for success.

Industry databases are much like those centered upon customers. They are informal and are also conveyed largely by word of mouth. A phone call to a number of non-competing owners you met at a PRI Trade Show, who have embraced a new product or service in their part of the country, can warn you of something that doesn’t work or encourage you to try it. Networking of this kind, together with ideas gleaned through profiles in this magazine, also help.

All of this, of course, flies in the face of the smart people who contend that human beings behave uniformly.

Know-How Counts

McKinsey & Company is an international consulting firm based on this principle. Basically, the company offers voluntary virtual communities—specialists who offer their expertise to colleagues.

Here is the way it works: A consultant working with a client on a particular problem queries the practice center with an outline of a client’s situation. The practice center searches the firm’s files for successful solutions previously developed by McKinsey consultants for other clients that proved successful. These are sent to the inquiring consultant’s location. The practice center guarantees a response within 24 hours to queries from consultants in any of their 58 offices in 28 countries.

In effect, the procedure followed by McKinsey is similar to networking. It is also similar to organized peer-group meetings on a local level, where owners of different types of smaller firms get together on a regular basis to share solutions to problems.

In short, it’s a system of using proven, real-life solutions to business problems, versus theories of what might work.

Success Requires Change

As an old proverb has it, “Whom the gods want to destroy, they send 40 years of success.” Peter Drucker used this phrase in a talk I heard him give not long ago. Drucker was talking about the decline of once highly successful firms such as General Motors, IBM and Sears. He argued that virtually every firm operates on a set of assumptions regarding the outside (customers, markets, competition, etc.). “The assumptions,” he said, “are usually taken as a ‘holy writ’ by the company and its executives. It is on them they base their actions and behavior. And then along comes an upstart firm that has an entirely different set of assumptions, and, as a result, the established firm flounders.

Smaller firms are far less likely to succumb to lethargy brought about by success because they are continuously forced to change their assumptions,” he added. This occurs because the owner manager is much closer to the customer than owners of larger companies.

Not only can he sense the changes taking place in the market, but the true entrepreneurs among the smaller firm owners are those who, noting the changes, ask of themselves the right questions. According to Drucker, these are first, “Who are the customers and who are the non-customers? What is the value to them and what do they pay for? Second, what do the successful firms do that we do not do? What do they do that we know is essential? What do they assume that we know to be wrong?

“Within the answers to the foregoing questions,” Drucker said, “lies the rationale for attempting a variety of new things. These changes involved a gamble. But, while hanging on to the old will soon destroy the firm, gambling on the new is a rational business risk based upon close observation of changes at hand.”

In summary, the racing retailers, engine builders and car builders are often put off by the generalized predictions of the so-called ‘smart people.’ And if such pronouncements are accepted as forecasts of the inevitable, owners of small companies are likely to allow events to run over them. But, many of these generalizations are based upon static assumptions about individual behavior, which in turn, more often than not, are converted into mathematical formulas.

As most smaller firm owners know, people—their customers in particular—react to events by innovating and using their initiative. These are impossible to factor into mathematical equations. It is this common-sense notion that makes it possible for the entrepreneur to defy predictions and thus cope with uncertainty.

In spite of what the ‘smart people’ say, unintended consequences outnumber intended consequences. Therefore, the best way for any small firm owner to improve their odds for success is to constantly try new things.

Guidance for which activities to attempt will come primarily from two sources: your customers and the racing industry.

The racing entrepreneur’s success too, is based upon the leveraging of know-how. This includes both your own experience, as well as the successful experience gleaned from industry peers.

Leveraging know-how is enhanced by the owner’s daily contact with customers and a shrewd series of questions he or she needs to ask. The answer to these questions will surely give direction to smart innovations in the future.

The business world at large can be intimidating and bewildering, but racing entrepreneurs have an advantage in their local niche market: they know it better than anybody. Take confidence in what you know to take action now.